subject: When to trade Nifty future for profit ? [print this page] Author: soumya ranjan panda Author: soumya ranjan panda
In my earlier article when to do day trade? I have given the mathematical procedure to know when to do day trade and when not to do day trade. While applying those rules for trading in nifty future or any index future I found that the sectoral future indices like bank nifty, IT index accept those rules. However the common indices like nifty, nifty junior shows some error. It is because of many internal cause and its stock composites. Like Nifty is the composite of 50 stocks which is being selected from the basket of 3000 stocks based on their market capitalization. More over all these 50 stocks represents different sectors. In this complex scenario how one can derive a protocol like when to do nifty future trade for profit?, Many times my clients and book buyers ask me this above question. As all of you would have experienced I never speak any thing beyond mathematics. If I have a tested and proven mathematical model then only I will speak or else not. Due to this often I encounter the criticism from a section of traders those who only belief money can be made in market only through unintelligent speculation and luck. But I do not care about that kind of criticism. To the reader of this article I strongly say that if you have a strong logical, mathematical model in place, you will certainly win the trade. The basic and only important criterion of your mathematical model is It must be accountable. We the people in smart finance work only for this objective and this is the way we are standing tall in this domain since past 9 years. Now I am going to give the simplest procedure to know when to trade in nifty future and when not to trade? . If you are a non Indian reader also do not get disappointed. This procedure will work in any common tradable index. 1st arrange all the stocks in that particular index based on their market capitalization in descending order. Divide the stocks in to 3 groups of equivalent size. Take 1 unit last traded price of each stock in each group and calculate the group cost for past 10 days. Find the 10 days beta of the index with each group. If the dominating group (group-1) is having higher positive beta as compared to the other 2 groups then trading in the index is advisable for intraday gain. If the group 1 beta is +ve but not higher than the group 2 or group 3 beta then range bound movement in a small trading band is expected. If the group 1 beta is +ve but lower than the group 2 or group 3 beta then range bound movement in a small trading band is expected. If the group 1 beta is ve but other 2 group beta is positive than you will see the following action. All gaps up opening or flat positive opening with respect to its previous close will not sustain and market will end negative. If group 1 beta is +ve but other 2 beta is ve than you will see all gap down opening or flat ve opening will end in positive. If the group 1 beta is above +1 or -1 the wide swing is expected. If the group 1 beta is less than +0.30 or -0.30 but the group2 and 3 beta is above +1 or -1 than index will have flat closing Though this discussion does not end here, it has many other combinations too but the above discussed points are enough for solving out objective. Example: In Nifty future we have 50 stocks. Based on this method how I will decide the trend of the nifty? Also how I will decide whether it is advisable to trade or not? I have arranged them in ascending orders of their market capitalization. Now I have to form 3 groups. My group 1 will have of 16 stocks, groups 2 have 16 stocks and groups 3 have 18 stocks. Companies based on their market capitalization flagged in daily news paper. Hence my 8th January 2009 I will have reliance, infosys, L&T, icici bank, hdfc, ITC, hdfc bank, sbi, ONGC ,bharti airtel, Tata steel, BHEL, TCS, sterlite industry, HUL and jindal steel. Same way other 2 groups I will form. The group cost for group 1 will be 1 share price of Reliance+ 1share price of infosys ++ 1 share price of Jindal steel= 20322.50 when nifty was trading at 5263.10 on 8th January 2009. Similarly I will find the group cost for group2 and group 3. I will find the beta from the % change in group cost with respect to % change in price of index taking the past 10 days group cost into account. You will find the beta calculation in my book called Gann Method also in the book named Master Key to future and option Say at end I got the beta of group-1 as 0.85, group 2 as 0.89 and group 3 as 0.95. in this the domination group which is group -1 has lower +ve beta as compared to the other 2 groups then as per the condition F range bound movement in a small trading band is expected . Now using the volatility model as I have explained in the article New approach to trade in nifty future or as per the turning point calculation explained in the Gann price range and time squaring method or Gann angle method or as per the gann cycle method as explain in the DVD course and in my book on Gann method, calculate the price range for the day. If the price range is worth to take an intraday risk then initiate a trade or else not. Follow the 11 rules as given above and put it in a spread sheet program.With click of mouse you can derive the trade decision and it will answer the most complex question when to trade nifty future ?. This system works in all the market and I have time tested it with many simulate examples.About the Author:
